Briefly: in our opinion, full (250% of the regular size of the position) speculative short position in gold, silver, and mining stocks is justified from the risk/reward point of view at the moment of publishing this Alert.
Practically all the points made in this week's flagship Gold & Silver Trading Alert remain up-to-date based on what happened during yesterday's session and today's pre-market trading, so we strongly encourage you to read it, if you haven't had the chance to do so yesterday.
The only thing that we would like to add today is the shape of yesterday's session in gold, silver, and mining stocks. That's something that yesterday's analysis doesn't cover, as it had been posted before the U.S. markets opened.
Yesterday in PMs
All three: gold, silver, and gold miners, moved in a clearly bearish way - both individually and relative to each other.
Gold rallied strongly on increased U.S.-Iran tensions and it declined right after touching its long-term 61.8% Fibonacci retracement level. Thanks to this action, it formed a crystal-clear shooting star candlestick, which is one of the clearest and most bearish reversal patterns in the gold market. This candlestick is important only when it's confirmed by big volume and yesterday's volume was definitely big. Implication: gold has most likely topped.
Silver did practically the same thing, but the 61.8% Fibonacci retracement that it reached was based on a more short-term decline. Silver soared and then immediately gave away its gains, thus forming a major reversal. And yes, the silver volume was also big - just like the one in gold. Implication: silver has most likely topped.
Mining stocks didn't manage to move to new intraday highs (no wonder - this market opened after the futures had already been trading for several hours) and they actually ended the session lower.
As far as relative performance is concerned, we just saw exactly what we would like to see at the top as a confirmation that it is indeed in. Gold reversed, but still ended the day higher - gold stocks didn't. Despite gold having ended the day $16 higher, gold stocks still declined. And that's right after a series of days where gold miners had already been underperforming gold. In yesterday's Alert, we wrote that miners are screaming in investors' ears: get out, get out now! Well, they just screamed again, just as loud.
Moreover, in relative terms, please note that in the preceding days silver didn't really move higher as much as gold did. It was hesitating. But at the very beginning of this week's trading, silver soared along with gold, outperforming it on a very short-term basis. That's exactly what we want to see as a sell confirmation.
No matter how you look at it, the precious metals market is likely to move lower from here. In our view, if there ever was an excellent time to enter or add to one's short positions in precious metals sector - this is it. Mining stocks and silver are likely to decline more than gold, but diversification might be a good way to go for most investors.
Summary
Summing up, based on the crystal-clear shooting star reversals, 61.8% Fibonacci retracements that were just hit, along with multiple similarities present in gold, silver, and mining stocks, as well as on the critical situation in the USD Index, the medium-term, and short-term outlooks for the precious metals market is very bearish. Given the proximity of the triangle-based reversals in gold, silver stocks' big volume spike, and the extreme weakness in gold stocks relative to gold, it seems that the short-term rally in gold, silver, and miners is now over. In other words, the profit potential of our trading positions remains intact.
In our view, if there ever was an excellent time to enter or add to one's short positions in precious metals sector - this is it.
As always, we'll keep you - our subscribers - informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full speculative short position (250% of the full position) in gold, silver, and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and binding exit profit-take price levels:
- Gold futures: profit-take exit price: $1,391; stop-loss: $1,622; initial target price for the DGLD ETN: $36.37; stop-loss for the DGLD ETN: $22.89
- Silver futures: profit-take exit price: $15.11; stop-loss: $19.06; initial target price for the DSLV ETN: $24.88; stop-loss for the DSLV ETN: $14.07
- Mining stocks (price levels for the GDX ETF): profit-take exit price: $23.21; stop-loss: $30.11; initial target price for the DUST ETF: $14.69; stop-loss for the DUST ETF $5.09
In case one wants to bet on junior mining stocks' prices, here are the stop-loss details and target prices:
- GDXJ ETF: profit-take exit price: $30.32; stop-loss: $44.22
- JDST ETF: profit-take exit price: $35.88 stop-loss: $9.68
Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)
Insurance capital (core part of the portfolio; our opinion): Full position
Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.
Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).
Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.
Please note that a full position doesn't mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder - "initial target price" means exactly that - an "initial" one, it's not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we've done previously). Stop-loss levels, however, are naturally not "initial", but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks - the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGLD, DGLD, USLV, DSLV, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as "final". This means that if a stop-loss or a target level is reached for any of the "additional instruments" (DGLD for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and DGLD as still open and the stop-loss for DGLD would have to be moved lower. On the other hand, if gold moves to a stop-loss level but DGLD doesn't, then we will view both positions (in gold and DGLD) as closed. In other words, since it's not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can't provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the "additional instruments" without adjusting the levels in the "main instruments", which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels on a daily basis for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Additionally, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
